UK Pension Schemes Bill: new criminal offences and other changes impacting corporate activity expected to come into force by autumn 2021

Despite strong indications from Guy Opperman MP, the Parliamentary Under Secretary of State for Pensions and Financial Inclusion, that the UK Pensions Schemes Bill (the Bill) would be passed as an Act before the end of last year, the Bill has not yet made any progress through Parliament since 16 November 2020 (see our previous blog post here), although the House of Lords is expected to review the amendments made by the House of Commons on 19 January.

However, earlier this week, the government confirmed that the new regulatory regime under the Bill is expected to come into force by autumn 2021, which is likely to mean this October.

The new regime will introduce wide new criminal offences, carrying a maximum penalty of seven years in prison, widened powers for the UK Pensions Regulator to use its “moral hazard” powers to impose civil liability to contribute towards pension deficits, and mandatory new procedural requirements for certain corporate activity.  These will have significant implications for corporate activities of groups with a UK defined benefit (DB) pension scheme, which will need to be carefully considered to ensure compliance with the new procedural requirements and effective mitigation of the wider risks. 

Significant concerns have been raised by the pensions industry and during the Parliamentary debates about the potential impact of the widely drafted new offences and whether they might have the unintended consequence of damaging, rather than protecting, DB pension schemes by making it much more difficult for their sponsoring employers to manage their businesses effectively. The legislation is clearly unsatisfactory as companies and individuals will have to rely on the uncertain concept of “reasonable excuse” when trying to work out whether particular corporate actions could result in serious criminal liability. The government’s response to concerns about the scope of the new offences is that the Pensions Regulator will provide guidance on the use of its new criminal sanction powers.  The announcement of the timing of the implementation of the new criminal offences reflects that the Regulator will consult on that guidance in the next few months.

However, it is difficult to see how the Pensions Regulator will be able to frame guidance which will be sufficiently broad, robust and reliable to provide the reassurance that the industry needs, particularly given the tremendously wide range of circumstances in which the new criminal offences could theoretically bite. There is a significant risk that, instead of protecting DB schemes as the government intends, the Bill could have the opposite effect if pension scheme liabilities become a blocker for corporate activity, with the difficulty being most pronounced in distressed situations – a particular concern in view of the financial difficulties in which many companies now find themselves due to the pandemic.

However, now that there is (some) more visibility on the timing of the new offences and other changes coming into force, corporate groups with DB schemes should consider the steps they need to take to protect themselves from future regulatory action. For more information, please speak to the authors of this post or your usual Freshfields contact on pensions matters.